Panalitix is working with a client located in the South Eastern United States. The firm has grown rapidly and serves many business clients, including some with revenues in excess of $5 million.
The owner of one of their larger clients (let’s call him “the Seller”) plans to sell the business to his son (let’s call him “the Buyer”) in the next year. They’ve been talking about this for over three years and important terms include:
- The Seller will receive 20% of the purchase price on closing the transaction
- The remaining 80% will be paid quarterly over the next five years from the proceeds of the business
- The Seller wants to be involved as an advisor to the business, partly to keep busy and partly to monitor the ongoing performance. He will receive a modest income for his efforts
- The Buyer’s wife (the Seller’s daughter-in-law) works in the business and has a ‘strong personality’. The Seller has expressed concern that she “does not have the best interests of the business or their family at heart”
- The Buyer and his wife have expressed concern that the Seller “will not really let go of the business”
Let’s just say that discussions have been ‘tricky’ at times… and the deal has been off and on. Finally, it appears to be going ahead.
One constant through all of this has been the accountant who has the trust of both the Buyer and Seller. She has delicately navigated the situation avoiding conflict and steering the family towards a sensible deal. She is a voice of reason and objectivity while managing the intergenerational complexities. She gives everyone a sense of calm and helps them focus on the issues. She has raised questions which the parties are unable or unwilling to raise. She was patient and let everyone have their say… while keeping things on track.
Sounds good, right? But there is something wrong with this picture. The accountant has not been paid for the incredibly important and highly skilled work she has done to help the family arrive at a deal. Why not? On the one hand, she looked forward to getting paid for the tax planning work once the family executed the deal. But, more importantly, she didn’t know how to value or structure her work as a facilitator / mentor / coach / advisor / consultant / family psychologist / mediator to her client.
This is not uncommon. Accountants can fail to recognise that they fulfil an extremely important role in helping parties arrive at consensus on complex issues.
What should she have done? There are various ways to structure these engagements ranging from:
- initial ‘planning sessions’ with appropriate follow up
- ‘projects’ with a fixed fee and a specific outcome
- ‘projects’ with hourly rates where the deliverables are more vague
To make these kinds of projects a success:
- Accountants first need to believe in the value they are offering.
- Accountants need to accept there may be some vagueness in the scope of work; complex problems involve many unknowns.
- Accountants should break down the scope of work into small, manageable pieces and focus on the ‘deliverables’ for each piece.
- Accountants should remember that clients are not expecting a cookie-cutter approach. Clients recognise that things are complicated and prefer an honest appraisal of their situation over an attempt to ‘provide all the answers’ at once.
Each situation is different but accountants who are successful in succession planning tend to ‘structure’ their engagements to take clients along a journey. This can involve getting clarity on factors such as:
- The Stakeholders: Who exactly is involved? Whose interests will be impacted?
- Financial goals: Wealth creation (one time), income, savings etc.
- Timeframes: For hitting financial goals, transitioning the business and any other important events
- Structural options: What does a transition look like and what are (dis)advantages of each approach?
- Preferred roles: Pre and post and transition
- Legacy: The ‘identity’ (reputation, name, brand) of a business before and after any transition
- Risks: What are they and how can they be avoided?
- Lifestyle: What kind of lifestyle do the stakeholders want to achieve? (This is as important as the financial implications).
Clients appreciate structure. They also want to sense that accountants are confident in the work they do. That will lead to long-term, lucrative assignments with clients in this important area. If you’re thinking of making Succession Planning an important part of your business, please get in touch. And if you want to get better at structuring your client projects (to ensure you get paid), let’s talk!